This article provides a list of recommended reading from among the many hundreds of articles that I have authored in the past several years. Note that I have personally written all the content that you will find on the six personal finance and investment websites referenced below. You can reach us by using the contact form below.

Enjoy!

The Skilled Investor website

Note that you can find all of my other financial websites, by going to The Skilled Investor website and clicking on the red colored links in the left hand column on any page of The Skilled Investor website.

On the front page of The Skilled Investor website you will find an index of pages with major categories and subcategories. Within the subcategories there are lists of articles and the front page tells you how many articles are in any subcategory. There are many articles in addition to those listed below, which you can find by clicking on the subcategory links below that have arrows in front of them.

Here are some suggested personal financial planning and investment management articles within the major categories and subcategories. Article titles are descriptive and should help you decide which articles you want to read first.

Personal Investment Management

• You must stay invested in the securities markets to earn market risk premiums
• Commodity futures in your investment portfolio — Is there really any future for individual investors?

• Excessive investment costs are a huge problem for individual investors

• How much do hidden mutual fund trading expenses cost you?

• Is it worth paying higher bond mutual fund management fees?

• Pay less to get more (Part 1 of 2)

• The heavy burden of recurring investment fees (Part 1 of 2)

• Understanding one-time investment fees, such as sales loads

• What is the cost to individual investors of sub-optimal portfolio diversification?

• Why is diversification valuable to individual investors?

• Can a limited number of stocks provide complete portfolio diversification?

• How many mutual funds are needed for a well-diversified portfolio? – Commentary

• Chance creates the illusion that investors can beat the stock market

• The illusion of superior professional investment manager performance

• Distinguishing between true investment skill and luck

• What have average investment asset class risk premiums been over long periods?

• Asset class investment risk premiums — your reward for taking investment risk

• How stable have common stock market returns been over time?

• How are asset class risk premiums and the risk free rate of return related?

• How do return expectations of investors compare to historical stock returns and risk premiums?

• Calculating your investment wage and the opportunity cost of your time

• The value and opportunity cost of your investment time

• Passive Personal Investment Strategies are More Time Efficient with Better Returns and Risk Control

• 15 Value-Added Individual Investor Activities

• What else should you read about investing?

• A caution related to classic investment books

• How can individual investors trust, when so much investment information is rubbish?

• How investment securities are valued — snapshots in time

• Introduction to investment valuation and securities risk

• The confusing investment securities market motion picture

• What is efficient market pricing in the securities markets?

Personal Financial Planning

This is a must shortened list of available articles, because there are many other personal financial planning articles posted on The Pasadena Financial Planner website. See a selected list below.

• The Problem — Straight answers about personal financial and investment planning are difficult to find

• The Solution – Only follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient

• Traditional versus Roth tax-advantaged plan contributions

• Factors that tend to favor Roth tax-advantaged plan contributions (Part 1 of 2)

• Summary Table of Traditional IRA and Roth IRA Tax Rules

• Executive Summary of VeriPlan

• VeriPlan’s 10 Financial Planning Tools and Financial Calculators

Financial Advisors, Investment Counselors, and the Financial Industry

Are Your Best Interests the Same as the Financial Services Industry?

• Financial science drives industry product development, but not necessarily toward the best interests of individuals

• The investment industry is not your investment partner

• How to lie with statistics: Investment performance charts (Part 1 of 2)

• Many individual investors are not fooled by an ethically challenged securities industry

• The securities industry calls marketing and selling – “advising”

Payment of Investment Advisors, Financial Planners, and Investment Counselors

• The economics of the financial advisory industry

• Does it matter how financial planners and investment advisors are paid?

• Can you really get free and objective investment advice, when you pay investment sales loads? (Part 1 of 2)

• How expensive is advisor compensation paid via sales loads?

Selecting a Financial Planning Advisor or Investment Adviser

• Preparing to interview a financial planner or investment advisor

• Questions to ask when hiring an investment advisor – Part 1 – Background and training

Regulation of Financial Advisors and Investment Advisers

• Regulation of financial planners and investment advisors — Introduction

Frauds and Scams by Financial and Investment Advisers

• Avoiding financial planning and investment advisor frauds and scams – Overview

• Avoiding financial advisor frauds and scams – The Never-do list — Part 1

Best No Load Funds website

Click “Sitemap” in top banner for a list of articles. Suggested reading:

• 7 Ways to Pick the Best Noload Mutual Funds and ETFs

To find articles that focus on each of these seven selection criteria, either click on the numbered headings within this article or go to the Sitemap.

No Load Bond Funds website

Click “Sitemap” in top banner for a list of articles. Suggested reading:

• No Load Bond Funds
• The Top 14 Low Cost Taxable United States Bond Mutual Funds (Low Minimum Deposit)

The Skilled Investor Blog

(associated with The Skilled Investor website)

You could read these selected articles:

• Where’s Waldo? – The illusion of superior professional mutual fund manager performance.
• Why only one Warren Buffett? The illusion of superior professional mutual fund manager performance.

Low Cost S&P 500 Index Funds website

You could read these selected articles:

• Top 10 S&P 500 Index Funds
• Buy an S&P 500 Index Fund with Low Costs

The Pasadena Financial Planner website

Click “Sitemap” in top banner for a list of articles.

Suggested reading:

• Your Family Financial Planning
• Your Family Financial Planning Process

The two articles above summarize “10 Financial Planning Steps in the Right Direction,” a recommended personal financial planning process. There are individual articles with more details about each of these 10 steps. You can find them by clicking on the bold section headers within the two articles above, or you can find them by clicking the “Sitemap” link on any page and looking for the articles that are numbered 1 through 10.

In addition to these financial planning process articles, read:

• Living Expense Tracking Methods
• Asset Allocation, Investment Asset Tax Location, and Emergency Cash Management

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See: Fee Based Pasadena Investment Advisor >>>

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Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101

KNOWLEDGE — OBJECTIVITY — HONESTY — DILIGENCE — SATISFACTION

A truly independent financial planner and fee only investment advisor

(Regarding compensation, I provide financial planning services only on a fixed fee or hourly fee for services basis, and solely under a contract that we agree upon. I do not charge any form of asset fee. In addition, to avoid all conflicts-of-interest, I do not accept commissions or compensation of any type from the financial industry.)

Start a conversation today — Send a message using this contact form

Financial Planning Pasadena CA

Use the top fee only financial advisor — helping clients in Southern California, including Altadena, Tujunga, Walnut, West Covina, La Canada, West Hollywood, West Los Angeles, West Toluca Lake, and Pasadena.

I strongly recommend that people adopt some form of expenditure tracking to increase their understanding of their annual ordinary living expenditures. A variety of manual and/or automated methods can be used to track expenses. (Note that you can reach me by using the contact form below.)

In general, there are at least three primary methods of tracking ordinary living expenses on either an annual, quarterly, or monthly basis. These methods are more or less time consuming, and each provides differing levels of information about your consumption. Furthermore, these methods can have ancillary efficiency benefits to your ongoing family financial management process.

Any of these three methods could provide the information needed to validate your total annual ordinary living expense assumption for purposes of your long-term financial planning using the VeriPlan lifetime financial planning tool. The following discussions summarize these three methods, and I recommend that you choose the one that seems to suit you best.

Post-Credit Crisis Notes Concerning:

Expense Management

NOTE: The best personal financial planning and investment practices are enduring and would not change because of market cycles or a financial crisis. The detailed article below was written before the financial crisis, but it requires no revisions. In light of the subsequent financial crisis, these update comments within this colored box were published simply to emphasize the enduring wisdom of expense tracking and consumption control.

Except for those few of you who have incomes and assets that far exceed your needs and desires to consume, awareness of expenses has increased for almost everyone else. Any sensible person, enduring this financial crisis and recovery, has thought about controlling expenses relative to their perhaps uncertain future income. Consumption control is the single most powerful tool that everyone has to influence whether their money will last.

Yet, simply controlling consumption is not enough. You also need to keep track of what you spend so that you know whether you are living within your means. Expense tracking can be a nuisance, and the more bothersome it is, the less likely you are to do a reasonably complete job of it. Thus, this article discusses a variety of expense tracking methods, so that you might pick one that would best fit your needs.

Also, click here on Expense Management Software to learn about the lifetime financial planning software that the Pasadena Financial Planner has developed for clients and for others to use. This personalized lifetime Financial Planning Software is for any individual and family who wants to develop a comprehensive, low cost, do-it-yourself lifetime financial plan. This financial decision support software automatically projects fully integrated lifetime cash flow scenarios about income, expenses, debts, investments, real estate, and personal businesses within the context of applicable U.S. federal, state, and local taxes. It also includes a 24-month expense budget and budget variance tracker with user definable expense categories.

A) Consolidated Account Cash Flow Expenditure Tracking

To track expenditures via cash flow analysis requires that you funnel all your expenditures through one or just a very few checking, credit, and debit accounts so that you have more consolidated records of your family’s financial transactions. The greater the number of accounts, then the more time consuming it is to remove inter-account transfers. Then, on either a monthly, quarterly, or annual basis, you simply measure the net cash flows and compare beginning and ending balances. The result is the net cash flow for the period.

For example, in its most simple form you would have one checking account and one or two credit/debit accounts, through which you paid all of your ordinary living expenses during a year. You could automatically deposit your net paychecks into this checking account, after your gross pay had been reduced for income tax and other tax withholdings, regular investments, etc. This consolidated account would be dedicated to paying only your ordinary living expenses, through 1) checks, 2) monthly payoffs credit card bills (in full, of course), and 3) cash for spending money.

Using this method, all you would need to do is take the beginning cash balance, add paycheck deposits, and subtract the ending balance to arrive at the ordinary living expenditures for the period. Of course, for whatever period you chose (monthly, quarterly) there would be a few bill payment timing issues. However, these timing issues, would tend to average out over the periods.

To make this ordinary expense cash flow measurement method work, you would need to pay other mortgage/debt payments and investments from a different account. Presumably, your ordinary expenses would be much less than your net earned income. As the cash balance in your ordinary expense checking account rose, you would periodically transfer cash to an interest bearing money market account periodically. Then, this interest bearing account would pay your mortgage, your debts, and enable you to make further make more investments – either automatically at regular intervals or on an ad hoc basis.

This cash flow method has the advantage of simplicity and requires only that you pay attention to which accounts you use for which types of payments. However, this method only provides an aggregate measure of ordinary living expenses and does not allow you to understand in detail where you are spending your money.

Note further that it is really not necessary to have a separate account to make mortgage, tax, and investment payments. If you use a single account, you would just need to adjust for any such “non ordinary living expense” payments, when you do your cash flow analysis. Nevertheless, using separate checking for ordinary living expense payments and a separate money market account for all other payments does have certain virtues.

While checking accounts do not pay interest, keeping a small cash buffer in a checking account can help to avoid periodic account fees and buffer your from overdraft charges. Periodically, as your cash builds up, you can transfer funds to an interest bearing money market account out of which you can pay mortgage bills and real estate taxes and make investments.

B) Receipt Collection and Addition

Alternatively, you could keep all receipts and total them on a monthly, quarterly, or annual basis. This method is more work than the account based cash flow analysis method discussed above. Receipt tracking requires that you be conscientious about collecting and totaling ALL of your receipts. This includes tracking the checks that you have written from your checkbook.

This receipts tracking method also would require you to track cash expenditures. You might simply make notes for cash expenditures (above some trivial minimum) and treat these as receipts. Otherwise, you could just use a very simplified cash flow measurement for your cash payments, such as adding up monthly ATM cash withdrawals.

While this manual receipt collection and totaling method requires more time and more conscientiousness about keeping receipts, it also can have more benefits. You can sort receipts into standard expense categories and keep a total of these categories.

Simple spreadsheets would allow you to track both expenditures within categories and total expenditures over time. Categorization of expenditures is helpful, when understanding fluctuations over time, and deciding where to reduce expenditures, if you sought to do so because your savings rate was below your expectations and plan.

C) Use of an Automated PC Expense Tracking Program

This third alternative can be more time consuming, but it can provide even more expense tracking and payment automation benefits. Overall, the use of a fully automated expense monitoring and bill payment system can be more efficient than a manual system.

There are a number of PC based automated personal expense tracking systems available. The leading one is Intuit, but there also are Microsoft Money, Mvelopes, and others.

For people who are very comfortable with computer based and Internet applications, these automated programs provide a wide variety of benefits. Regarding Intuit, for example, ordinary living expense tracking is almost a side benefit of using Intuit to manage your short-term cash flows and accounts. In addition to logging all your transactions, you can use its ability automatically to connect to your online financial accounts and to integrate your checking, savings, credit, and investment accounts for a unified view on your PC.

Learning an application like Intuit takes some time, and time is required for ongoing maintenance. Nevertheless, the automated integration of all your accounts, and the ability to make electronic bill payments and other financial transactions, can easily compensate for the learning and ongoing time commitment. People spend a large amount of time and postage manually paying bills by mail.

Furthermore, bill payments through the mails might not be delivered properly. In addition, sometimes mailed payments are not processed properly by the financial institution that receives them. These error situations are irritating and time consuming to correct. Electronic payments can be more efficient and more timely and can have a lower error rate.

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See: Pasadena Investment Advisor >>>

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Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101

KNOWLEDGE — OBJECTIVITY — HONESTY — DILIGENCE — SATISFACTION

A truly independent financial planner and fee only investment advisor

(Regarding my compensation, I work only on a hourly fee or fixed fee for services basis, and only under a contract agreed upon with you. You do not have to pay any asset fees. In addition, to avoid any conflict-of-interest, I never accept compensation or commissions of any kind from the financial industry.)

Start a conversation today — Send a message using this contact form

Financial Planners Pasadena California

Use the top fee only financial advisor — helping clients in Southern California, including Altadena, Tujunga, Walnut, West Covina, La Canada, West Hollywood, West Los Angeles, West Toluca Lake, and Pasadena.

This is one of the “10 Steps in the Right Direction” that make up The Pasadena Financial Planner’s personal financial planning and personal investment management process. For a summary of these ten steps, see “Your Family Financial Planning.” To find an in depth article for each step, just click the Pasadena Financial Planners Sitemap link at the top of this page. You can reach us by using the contact form below. Please enjoy reading this article. Thank you!

Investment diversification is a genuine financial “free lunch.” Diversified investment funds are key contributors to optimal investment risk management.

Diversification has become an axiom of personal investing, because the specific risks of businesses and other investment entities can be reduced or eliminated from a portfolio without reducing expected returns. When you hear that you should diversify your investments, this means that you should diversify your investments completely and globally – now and always. The investment research literature repeatedly demonstrates that a fully diversified, low cost investment strategy is superior. Get diversified. Stay diversified. Be globally and fully diversified all of your life.

Post-Credit Crisis Commentary Concerning:

Diversified Investments

NOTE: Best personal investment and financial planning practices are durable and wouldn’t change because of market cycles. The article below was written years ago and doesn’t need to be revised. In light of the more recent financial market crisis, the additional comments in this colored box were published recently to emphasize the durable wisdom contained in the detailed article below.

The best investment strategy is to seek complete market diversification at the lowest investment cost using passively managed and globally diversified index mutual funds. You can reduce the volatility of your personal portfolio significantly and track the return of the market with relatively small investment costs. Other strategies tend of be sub-optimal, involving greater portfolio volatility and risk — and accompanied by higher costs in term of expenses, taxes, time commitment, and stomach acid.

Nothing that has happened in the credit crisis changes the value of broad market diversification. Some uninformed post-crisis commentary has questioned the wisdom of diversification, which only indicates a failure to understand what diversification can and cannot do for you. Diversification across a portfolio can and does mitigate volatility over time. However, when systemic factors across asset classes are in motion in the securities markets, then there is nowhere to hide, as occurred with the credit crisis. As over-leveraged investors (AKA speculators) across a variety of asset classes scrambled for liquidity, selling pressure increased broadly and asset values crashed generally, albeit, not uniformly. Those who were very broadly diversified felt less pain, but still felt pain.

However, if you really like the potential for a lot more pain, then don’t diversify. Sooner or later, that pain is much more likely to come to an ill-diversified investor’s portfolio compared to the porfolio of a broadly diversified investor.

Of course, ill-diversified investors chasing tactical and active strategies are always hoping for outsized returns for the added risk. Sadly, only a minority of active investors will get lucky, and it is largely luck (of the lack thereof) that is at play here. The percent of the lucky minority achieving excess returns tends to diminish with time — as excessive fees and taxes eat away at illusory excess returns — proving the foolishness of active strategies.

Article continues:

Diversification is really not an option, if your goal is optimized, risk-adjusted personal investing. Diversification is not an optional part of family investment strategy, if that family wants to sleep well at night. When you are less than fully diversified, every day that you wait exposes you to investment risks that the securities markets tend NOT to compensate through better returns. When you are less than fully diversified, your investment portfolio risks are higher than they need to be without a reasonable expectation of getting any likely additional returns.

When you chose an active management strategy versus a passive one, try to time the markets versus staying put, buy individual securities versus funds, favor certain economic sectors versus full domestic and international diversification, etc., then you are much more likely to lose than to win. This is simply because the road you are taking is unnecessarily rough and unnecessarily winding, and you have less certainty that you will reach your goals. You might overshoot in performance if you are lucky, but you are much more likely to under-perform, because of the various higher expenses and costs that continually drag down active strategies. The longer your time horizon the greater the chances that you will fall behind a passive, lowest cost, market investment strategy.

A passive strategy targets a market return and can still be a bumpy ride — especially if you are not fully diversified globally and you have not adopted an asset allocation that is appropriate to your tolerance for investment risk. Nevertheless, the attendant risks are lower and potential variations are narrower than active strategies. Furthermore, passive strategies that drive down investment costs and expenses to the bare minimum are not continually burdened by repeatedly having to pay the financial services industry a much larger and undeserved share of your returns. It is hard enough to finish a marathon without carrying water for the financial securities industry at the same time.

Full global investment diversification using the broadest, cheapest, most passive index mutual funds and exchange traded funds (ETFs) is the most optimal strategy for the individual investor.

Few in the industry will tell you this, because a lowest cost, global, and passive diversification strategy is the least profitable to the financial services industry. The securities industry looks upon you as a naive “retail investor.” The industry trains its representatives to sell to you the most profitable products that it can at “retail” prices.

Through visible and hidden fees and other costs, these “retail” prices are heavily marked up to compensate the industry and its very highly paid sales force. Who do you think is paying for all those tall buildings, brass fittings, mahogany tables, woolen suits, and expensive silk ties? Who pays the industry’s huge salaries and bonuses? Does the money just come out of thin air, or does it come out of your investment assets and your investment returns?

Few will tell you this fundamental truth about the superiority of cheap, passive, fully diversified broad market investing. Everyone in the industry gets paid somehow, and there is far less profit in promoting a low cost, fully diversified investment strategy. However, there is real money in it for you. In the long run, you will tend to save more money, to save more time, and to save yourself from emotional consternation, when you use a very low cost, fully diversified passive investment strategy.

Complete investment diversification has become an axiom of personal investing, because the specific risks of businesses and other investment entities can be reduced or eliminated with a fully diversified portfolio without reducing your expected returns.

A fully diversified portfolio is an absolute investment necessity. Increased diversification reduces portfolio risk without a corresponding reduction in expected portfolio returns. Diversification is genuinely an investment “free lunch,” and it is a key contributor to improved investment risk management. A very high degree of diversification can be achieved through investing in a variety of low cost passively managed index mutual funds or exchange-traded funds. Such investments are also among the lowest cost investment vehicles available to individual investors in the financial markets. Given that this alternative is easily and cheaply available, the relevant question is never whether a portfolio should be fully diversified.

Through investments in broad-based index mutual funds and exchange-traded funds, diversification is relatively easy and inexpensive to achieve. Attempting to become broadly diversified through the self-assembly of a portfolio of a large number of individual securities is far more difficult and much more costly.

Portfolio self-assembly is much more likely to result in higher risk with returns that lag the market. Buying individual stocks and bonds instead of diversified funds provides you with no advantage whatsoever. The industry likes it, because individual securities trading generates fees and keeps the charade of beating the market going. However, when you buy individual stocks and bonds, you are less than fully diversified, and you are exposed to more risk. Plus, you also get to waste your money and time for nothing. Pay more and get less. What kind of value added is that? You are better off ignoring that kind of investment counseling and financial advice.

Also, see these articles for more about the value of diversification: “The value of diversification to individual investors” and “What is the cost to individual investors of sub-optimal portfolio diversification?” These articles are published on The Skilled Investor, and they report on important investment research studies on asset diversification. Note that The Skilled Investor is one of our sister publications, and it is the longest running of our family of websites.

A significant portion of a investment portfolio may sometimes become concentrated in a single investment security, which dramatically increases the overall risk of a personal investment portfolio.

While generally undesirable, there sometimes are unavoidable reasons for investment concentration. Unavoidable reasons for lack of diversification can include owning a private business or being a key member of a company management team who is required to own company stock by an employment agreement with the company. In such circumstances, you should seek expert guidance on possible ways to mitigate the risk associated with your concentrated investment position.

Nevertheless, for 99.9+% of investors, there is absolutely no good reason to maintain a high level of concentration in an individual security. Immediate steps should be taken to reduce the exposure. How many failed public companies like Enron and WorldCom do investors need to see crash and burn, before they realize that excessive concentration does not pay and can lead to very significant personal financial peril?

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See: Investment Advisors in Pasadena California >>>

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Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101

KNOWLEDGE — OBJECTIVITY — HONESTY — DILIGENCE — SATISFACTION

A truly independent financial planner and fee only investment advisor

(Concerning compensation, I provide financial planning services only on a hourly fee or fixed fee for service basis, under a contract that we agree upon. You do not have to pay any asset fees. In addition, to avoid all conflicts-of-interest, I never accept compensation or commissions of any kind from the financial industry.)

Start a conversation today — Send a message using this contact form

Pasadena Financial Planners

The best fee only investment advisor for clients in the Pasadena area, including these towns South Pasadena, South San Gabriel, Studio City, Sun Valley, Sunland, Tujunga, and Pasadena.

This is one of the “10 Steps in the Right Direction” that make up The Pasadena Financial Planner’s personal financial planning and personal investment management process. For a summary of these ten steps, see “Your Family Financial Planning“. To find an in depth article for each step, just click the Sitemap link at the top of this page. Also, you can reach us by using the contact form below. Please enjoy reading this article. Thank you!

Individual investors with different levels of investment risk tolerance for financial risks tend to be more satisfied with risk management strategies, which are better aligned with their financial risk and return profile.

Individual investors differ in their personal preferences related to risk management in their personal investment portfolios. This means that more risk-averse investors are personally more satisfied with a less risky investment portfolio – despite the fact that the expected returns of a lower risk portfolio may be substantially less. In contrast, investors who are less risk-averse tend to be more satisfied with portfolios characterized by both higher risk exposure and higher expected stock market returns.

Everyone would love both low investment risk and high investment returns in the same portfolio, but such portfolios are just pipe dreams. Investing is all about intelligent and sensible exposure to investment risks. If you are not exposed to the risk of losing some or all of your capital, you are not investing. Nevertheless, there are market investment risks that historically have paid an investment risk premium, and there are many other ways to take risks without a reasonable expectation of being compensated for those risks.

When defining a personal investment strategy and before making related decisions, it is important for individuals to assess their personal risk tolerances relative to other investors. The challenge is to gauge risk tolerance relative to others and then to adopt an investment strategy that reflects that relative risk tolerance.

Investing involves risk, and there is no way around it. Investing means that the investor is willing to incur risk in exchange for the possibility of a higher payoff. An investor’s relative risk tolerance is the primary decision in his asset allocation strategy.

You are not investing, unless there is a chance that you will lose some or all of your capital investment. Rational investors expect increased returns for taking on investment risks.

True investors are all assumed to be risk-averse versus risk-seeking. Market prices of securities reflect the market’s current risk consensus. Investors have rational expectations for positive risk-adjusted payoffs. Investing is not like traditional gambling, where the expected average payoff is negative.

On average, stock and bond investments have paid investment risk premiums historically. These premiums have fluctuated and have been thoroughly unpredictable. Investors who have consistently stayed in the market have earned higher returns over time. While the desire to avoid investment risk is understandable, investment studies have demonstrated that efforts to time the market by jumping in and out have not been successful.

Everyone would like higher returns, but only some are able and willing to live with the greater risks that are associated with a potential for higher returns. However, there are no guarantees in investing.

Investors with different levels of risk tolerance are more satisfied by the expectations associated with investment strategies that are better aligned with their risk preferences. Differences in risk tolerances mean that more risk-averse investors are personally more satisfied with a lower risk portfolio despite its lower expected returns. Less risk-averse investors are more satisfied with portfolios characterized by higher risk and higher expected returns.

All apparent investment “guarantees” have a price and have risks. Because investing is inherently risky, individuals should understand their probable response to risk factors that actually do materialize. Risk tolerance is an issue of personal psychology and will determine whether an investor will adhere to and sustain an investment strategy during more difficult economic and investing times. When markets are performing poorly and fears are high, an inappropriate alignment between an individual investor’s portfolio risk or volatility and his or her risk tolerance can be very costly.

In such circumstances, some less knowledgeable and unprepared investors may take actions, which may be appropriate to their personal psychology at the time. However, these mistaken actions can be highly inappropriate for the current financial market situation and highly detrimental to their long-term financial goals and welfare.

For example, some investors may panic and sell when they did not have to, only to see the market recover later, while they remain on the sidelines with a dramatically diminished financial asset portfolio. Portfolios with different risk and return characteristics are simply better for certain investors depending upon their tolerance for risky investments.

While there are a variety of approaches to the measuring personal investment risk and return preferences, brief and overly simple written surveys often are not sufficient.

Individuals need to assess their emotional and behavioral tolerance for risk relative to the average person holding investment assets. This self-assessment process is not easy. Individuals need to reflect upon personal real-life financial and other situations from their past lives, which involved significant risks and rewards.

Individuals often are reasonably good judges of their likely behavior in the face of stock market risks and other financial market risks that might actually materialize. However, these same individuals often are not good at assessing the likelihood of risks occurring. A truly competent and objective financial adviser and investment counselor can aid in this process.

The asset allocation of the average investor’s portfolio serves as a baseline for average investment risk tolerance. The challenge is to determine your risk tolerance relative to such an average investor, and then to adjust your asset allocation accordingly.

An investor would not wish to be talked into an overly aggressive and uncomfortable investment strategy that would be difficult to sustain through difficult times. Conversely, an investor would not wish to adopt an overly conservative strategy. Conservatism may feel more comfortable, but it tends to require much higher rates of personal savings to build up needed investment assets across a lifetime.

If you would like to find our about how you can take an online investment risk tolerance analysis survey, click here: Investment Risk Tolerance Questionnaire

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See: Financial Planners Pasadena >>>

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Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101

KNOWLEDGE — OBJECTIVITY — HONESTY — DILIGENCE — SATISFACTION

A truly independent financial planner and fee only investment advisor

(Concerning my compensation, I charge only on a fixed fee or hourly fee for service basis, and only under a contract agreed upon with you. I do not charge any asset fees. Furthermore, in the interest of avoiding all conflicts-of-interest, I do not accept compensation or commissions of any type from the financial industry.)

Start a conversation today — Send a message using this contact form

Investment Consultants in Pasadena

The best financial investment advisor for people who live in the West Los Angeles area, including Glendale, La Crescenta, La Tuna Canyon, La Verne, Los Feliz, Monrovia, Montrose, North Hollywood, and Pasadena.

This is one of the “10 Steps in the Right Direction” that make up the Pasadena Financial Planner’s personal financial planning and personal investment management process. For a summary of these ten steps, see “Your Family Financial Planning.” To find an in depth article for each step, just click the Sitemap link at the top of this page. Also, you can reach us by using the contact form below. Please enjoy reading this article. Thank you!

Your personal savings rate is the single most important personal financial planning lever that you control directly through your lifetime efforts to earn income and to manage personal expenditures and your family budget.

Economists call the potential of each person to earn money, pay expenses, and still set aside financial savings their “human capital.” For most people, their personal human capital is all they have financially, until they convert some of their human capital into more durable investment assets.

Over their lives, individuals must rely increasingly upon assets to replace earned income. Without the good fortune of receiving substantial inheritance and gifts or winning the lottery, you can invest – only if you save. When saving to fund an investment program, you must live within both your current and future economic means.

Saving money adequately across your lifetime is the most difficult challenge that you and your family face.

Prior to retirement, you must produce earned income to cover current expenses. Furthermore, you must produce excess income and control your expenditures to allow for adequate personal savings rates. Your personal savings rate will largely determine whether you will build up enough assets for the unknown and uncertain future that lies decades in front of you. In retirement, your cash flow management challenge shifts from saving for retirement to retirement expenditure management. Your retirement investment assets and investment income must be adequate for your retirement expenses, yet you cannot know how long your retirement savings will last.

In relative terms, your lifetime investment management strategy is a piece of cake compared to the challenge of earning, controlling expenses, and savings. Personal savings and cash flow planning are relatively difficult, while optimal lifetime investing is relatively straightforward.

A positive difference between current earned income and household expenditures – or plain old financial savings – usually results from awareness and intentional control of personal consumption.

Expense control allows for personal savings, personal investing, and eventually deferred consumption of investment returns and the investment principal, if necessary. Those who are better at managing their savings plan tend to be much more conscious of their expenditures. They tend to be more aware of the level of their current personal expenses relative to their current earned income. In short, they are better at personal financial planning and family cash flow management.

Personal savings rates increase with conscious planning and better expenditure decision-making. Better expenditure control results from a conscious decision made at the time of each purchase. Across your lifetime, the quality of your personal financial decision making at the point of purchase will determine much of your overall financial success.

Each purchase potentially involves a “need versus desire” decision. Some people do this better than others. Some plan ahead and understand their limitations. Many simply do not.

The Pasadena Financial Planner believes that lifetime financial success is dominated by both the quality of personal consumption decision making and knowledge of one’s current financial limitations. In the long term, many frugal people of modest means will end up more secure financially, when compared to higher earners with less conscious understanding and control of their expenditures.

Most people simply do not have a high enough personal savings rate to meet their retirement savings and other future financial needs.

Your cumulative lifetime labor earnings are variable and uncertain. Your human capital is perishable. Personal income volatility has increased significantly at all income levels in recent decades and people must exercise increased discipline to restrain spending in a fluctuating income environment. The passage of time steadily diminishes your total personal earning potential. Furthermore, illness and injury can randomly slash the value of your potential human capital, while disrupting your life, while permanently altering your best-laid financial finance and savings plans.

The Bureau of Economic Analysis of the U.S. Department of Commerce has tracked the national personal savings rate since 1952, as part of its “National Income and Product Accounts” and “Flow of Funds” reporting. From the 1950s through the 1980s the national national savings rates fluctuated around the 9% to 10% range. In the early 1980s, these rates began to decline. In 2006 and 2007, they have turned slightly negative. Only after the dreadful global credit crunch of 2007 to 2009 had devastated credit availability and forced both lenders and borrowers to change dramatically their easy borrowing and lending practices did this trend reverse. In 2009, the US savings rate began heading toward the high single digit percentages and people spent less, saved more, and paid down their debts more quickly. Whether the national savings rate will approach or exceed 10% and stay there is a significant question. This savings rate will have a great impact on the long-term financial security of many millions of US families.

A negative national personal savings rate means that for every dollar someone saves, another American goes more than a dollar into additional debt. This American savings trend (or lack thereof) is very disturbing, since a sustained long term savings rate of 10% to 20% is usually required to save adequately for secure and comfortable retirement.

Therefore, the first thing you must get right is your financial savings program. To ensure that your personal savings rate is high enough to build up an adequate asset base, you must understand, track, and project your cash flows. You cannot know the adequacy of your savings rate and your progress toward your investment goals without measuring your current progress and projecting your future cash flows.

Any comprehensive cash flow projection must also include planned future cash requirements for living expenses and special requirements, such as a down payment on a house, college expenses, retirement, charitable giving, and estate bequests. Projected personal financial requirements provide the baseline expenditure plan over which you can overlay various income and investment return scenarios to test the adequacy of your current savings and investment plans.

When you work with The Pasadena Financial Planner, we will use VeriPlan to analyze and project your lifetime financial affairs in comprehensive detail.

VeriPlan is a very sophisticated and customizable computer planning model that I have developed. VeriPlan enables you to view graphical projections of your family’s income, expenses, assets, and debts across your lifetime. Data inputs reflect your particular situation and include all of your significant assets, including cash, bonds, equities, property, real estate, private equities, and business interests.

This comprehensive lifetime financial planning and cash flow modeling process is very important. We measure your current financial circumstances and model your goals and intentions for the future within this framework. To develop your customized lifecycle model, we will work together to gather information, adjust assumptions, and evaluate the effects of different financial decisions across your lifecycle. For more information about VeriPlan, see: Lifetime Financial Planning Software.

VeriPlan can vary future expected investment returns by asset class, and it automatically analyzes the details of your taxes, investment expenses, and retirement investment plans. Any and all assumptions can be changed for instant “what-if” testing. The cash flow model’s risk analysis capabilities evaluate how well your future assets would cover normal and extraordinary expenses, if market or personal circumstances were to disrupt your plans. Because excessive and unnecessary investment costs undermine the lifetime investment returns of most people, VeriPlan automatically projects the returns you will waste with such excessive investment fees, if you do not choose more cost-efficient investments.

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See: Pasadena Investment Adviser >>>

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Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101

KNOWLEDGE — OBJECTIVITY — HONESTY — DILIGENCE — SATISFACTION

A truly independent financial planner and fee only investment advisor

(Regarding how I am compensated, I provide financial planning services solely on a fixed fee or hourly fee for service basis, and only under a contract agreed upon with you. You do not have to pay any form of asset fee. Furthermore, in the interest of avoiding all conflicts-of-interest, I do not accept commissions or compensation of any kind from the industry.)

Start a conversation today — Send a message using this contact form

Financial Advisor Pasadena

Serving clients throughout the greater Pasadena, California area including these cities: Alhambra, Altadena, Arcadia, Azusa, Baldwin Hills, Baldwin Park, Burbank, Glendale, La Canada, La Crescenta, La Tuna Canyon, La Verne, Los Feliz, Monrovia, Montrose, North Hollywood, Pasadena, San Gabriel, San Marino, South Pasadena, Sunland, Temple City, and Toluca Lake.

(Note that you can reach us by using the contact form below.)

Using hundreds of thousands of what the securities industry calls “producer” employees, the brokerage industry sells investment products and services to clients for transactional fees, asset holding charges, and many other more or less visible investment costs. Governed by the Securities and Exchange Act of 1934, as amended, the legal standard of client care by these brokers is the “suitability” of an investment to a client. However, there is huge latitude in what a suitable investment is and how much it can cost a client.

From the brokerage industry’s perspective, the wealthier the client is the better. Greater assets yield more revenue and higher profit per hour spent with clients. For example, Morgan Stanley’s 2007 compensation plan for their personnel serving retail clients eliminated all compensation for household accounts below $50,000, and it reduced compensation on household accounts under $75,000, unless these client accounts were being charged a percent of assets fee. Clearly, the message to Morgan Stanley sales personnel was and is to chase wealthier fish. Similar messages are given to broker producer employees in all brokerage firms across the industry.

Post-Credit Crisis Notes Concerning:

Financial Planning Fees

NOTE: Best individual financial planning and investment practices persist and shouldn’t vary because of financial crisis. The detailed article below was published before the financial and requires little updating. Given the more recent financial crisis, the update comments in this box were authored more recently to emphasize the enduring wisdom contained in the detailed original article below.

As the financial crisis arose and subsided, those who occupied many of the musical chairs of the financial industry changed. However, the financial incentives and compensation practices of the industry changed hardly at all. Since increasing industry concentration had never been challenged before the financial crisis, we were all faced with the “too-big-to-fail” conundrum. The professional — supposedly “smart money” — financial industry created a toxic financial environment for everyone, but they just “had” to be bailed out by taxpayers, so that all of our houses would not burn to the ground collectively.

Subsequently, little if anything has changed — even with passage of Wall Street reform act in 2010. Before most of the country had realized just how persistently bad things would become in the general economy, the securities markets turned around in anticipation of future improvements. And, huge Wall Street bonuses started all over again. Yet, it was the taxpayer bailout money that keep the financial industry and the general economy away from the precipice of another great depression. Thus, financial market expectations rose off of extremely pessimistic depression expectations, allowing the industry to restore its profitablity and fat paychecks.

Concerning how the financial advisory industry deals with the “retail public,” which is discussed in this article, little has changed. If anything the industry’s pursuit of the rich has intensified, while services to the middle class have declined. In summary, if you don’t have substantial investable assets, then expect little attention and overly expensive commissioned products. If you do have substantial investable assets, then hold on to your wallet with both hands! You will be asked to pay a substantial percentage of your assets year after year with no reliable assurance that these fees will improve your welfare in the long-term.

Most registered investment advisor compensation is proportional to client assets — the more assets you have the better for your financial adviser

Another large segment of the financial services industry that serves the public consists of about 100,000 independent investment advisor consultants, who are regulated at the federal and/or state levels. Governed by the Investment Advisers Act of 1940, as amended, and by state laws, these advisors have a seemingly more stringent standard of client care. However, again there is huge latitude in what constitutes minimally acceptable advisor service quality and how much advisory services will cost a client.

Most registered investment advisors deliver services that are charged as a percent of client assets under management. However, often many of these same advisors obtain additional revenues from the securities and insurance industry, when they sell commissioned financial products to their clients.

The wealthier the registered investment advisor’s client is, the better it is for the advisory practice. The greater the client assets under management, the more total revenue for the advisory firm and the higher the client service profit per hour will be.

The economics of the financial consulting industry create a mad dash to catch the wealthy

Whether served by a broker or by an independent financial advisor, if an individual wants personal professional attention, that individual must already have substantial assets that can generate revenue to compensate the advisor. If clients are to be given personalized attention and the valuable time of the advisor, each client must generate several thousand dollars in fees annually one way or another.

The math is simple. For example, if average client servicing requires 20 hours of attention yearly and a profitable hourly rate is $150 per hour, then the required average revenue per client is $3,000 per year. If $3,000/per year is the client revenue minimum for a practice, then the client needs to have $300,000, if the fee is 1% of assets per year. The lower the assets, then the higher the percentage necessarily must be.

Since clients usually balk at much higher percentage fees, the revenue requirements of advisory practices mean that people with less assets will not get personalized services. Clearly, the vast majority of Americans do not fit the industry’s economic profile of a profitable advisory client.

This is why there is so much effort to obscure and hide the true financial and investment costs that clients actually pay. The more the true cost can be hidden and the services promoted as supposedly “free,” then the easier it is to profit from the client, while probably not serving his best interests.

The Pasadena Financial Planner breaks out of this chase-the-rich compensation model

My financial and retirement planning services will be valuable and cost-effective to you. My financial consultant fees will be reasonable, clearly understood, and determined in advance. I can provide you with comprehensive, reasonably priced financial, investment, and retirement planning services on an hourly, fixed fee, or retainer basis. I never charge any fees in relationship to your assets.

For a better understanding of how I operate see: Financial Planning in Pasadena

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See: Independent Pasadena Financial Advisor >>>

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Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101

KNOWLEDGE — OBJECTIVITY — HONESTY — DILIGENCE — SATISFACTION

A truly independent financial planner and fee only investment advisor

(Regarding how I am compensated, I perform services only on a hourly fee or fixed fee for services basis, and only under a contract that we agree upon. You do not have to pay any asset fees. In addition, to avoid any conflict-of-interest, I never accept compensation or commissions of any type from the industry.)

Start a conversation today — Send a message using this contact form

Pasadena Financial Advisors

Find the best independent financial planner for those living in the San Gabriel Valley, including Arcadia, Baldwin Park, Burbank, Covina, Diamond Bar, Glendale, Duarte, La Canada Flintridge, West Los Angeles, and Pasadena.

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I am committed to the financial education of my clients. I strongly believe that financial education will help you to make much better personal financial planning decisions across your lifetime. Together, we can significantly improve the quality of your practices in family financial planning and your personal investment management.

We will work together cooperatively to analyze your financial affairs. We will develop a detailed lifecycle projection model of your family’s finances that will allow us to automate the testing of how different personal financial decisions might impact your family’s financial future.

I will help you to understand and adopt more durable, time-efficient, and cost-effective lifetime financial and investment strategies. I will advise you on improved methods for the long-term self-management of your family’s financial affairs. Your personal financial and investment plan will be designed for cost-efficiency, tax-efficiency, and time-efficiency. Once established, your financial plan should require minimal tuning over time.

As your personal financial advisor and independent investment advisor, I will also act as your financial consumer advocate.

I will help you learn how to be a highly cost conscious consumer of financial and investment products that are consistent with your personal financial goals and plan.

My financial and retirement planning services will be valuable and cost-effective to you. My financial consultant fees will be reasonable, clearly understood, and determined in advance. I can provide you with comprehensive, reasonably priced financial, investment, and retirement planning services on an hourly, fixed fee, or retainer basis.

I will never charge any fees in relationship to your assets. Simply put, your financial assets are yours and not mine. I believe that financial advisor fees should not be proportional to your assets.

Your family’s interests will always come first. I will work exclusively for you and your family. I will never accept any form of compensation from any third party.

When delivering my financial planning and investment advisory services, I will never tolerate any conflict of interest. No financial industry incentives will ever interfere with my development of an optimal long-term financial plan for you. My recommendations will focus exclusively on your family’s financial interests.

Get help from a fee only financial planner and independent investment advisor who will:

• Take the time necessary to understand your family’s personal financial and retirement planning situation in comprehensive detail
• Provide thorough, personalized, and specific financial action plans
• Put you at the center of decisions using a sophisticated and fully automated personal financial planning tool that projects across your lifetime the potential impacts of financial decisions you might wish to make.

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See: Pasadena Financial Planners >>>

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Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101

KNOWLEDGE — OBJECTIVITY — HONESTY — DILIGENCE — SATISFACTION

A truly independent financial planner and fee only investment advisor

(Regarding how I am compensated, I work solely on a hourly fee or fixed fee for services basis, and only under a contract that we would agree upon. I do not charge any asset fees. In addition, in the interest of avoiding any conflict-of-interest, I never accept commissions or compensation of any kind from the industry.)

Start a conversation today — Send a message using this contact form

Financial Planner in Pasadena California

Serving clients throughout the greater Pasadena, California area including these cities: Glendale, La Canada, La Crescenta, La Tuna Canyon, La Verne, Los Feliz, Monrovia, Montrose, North Hollywood, Pasadena, San Marino, and South Pasadena.